Business Gender Diversity Solved: More Women Means More Profits

Usefully we can now put all of our concerns about gender diversity in business to bed. We now also know that there's nothing we need to do about it either. We don't need to pass laws, don't need to force companies to appoint women to boards, we can just leave everything to the usual naked capitalist greed and it will all work out fine. For that is the result from this fascinating little piece of research from the Peterson Institute. They find that having more women in the senior management ranks of a company (please note, not so much in the C-Suite) increases the profitability of a firm. If we accept this result, and there's no good reason why we shouldn't, then this means that we just don't have to do anything. Because we already do believe that capitalists are greedy for profits and thus we can expect them to hunt those extra profits by employing and promoting more women. It's only if we don't believe this result that we must do something, all as Gary Becker pointed out in fact.

Companies with 30% female executives rake in as much as six percentage points more in profits, according to a study, feeding into a global debate over the scarcity of women in decision-making business roles.

The conclusion stems from a study of about 22,000 publicly-traded companies in 91 countries ranging from Mexico to Norway and Italy conducted by researchers at The Peterson Institute for International Economics, a Washington, DC-based think tank.

"If you're a firm and you're discriminating against potential female leaders, that means you're essentially doing a bad job of picking the best leader for your firm," said Tyler Moran, one of the study's three co-authors, in an interview.

The results indicate the presence of women in corporate leadership positions can boost a firm's performance, suggesting a reward for policies that facilitate women rising through corporate ranks.

We believe that there are at least two channels through which more female senior leaders could contribute to superior firm performance: increased skill diversity within top management, which increases effectiveness in monitoring staff performance, and less gender discrimination throughout the management ranks, which helps to recruit, promote, and retain talent. Because gender-biased firms do not reward employees with responsibilities commensurate with their talent, they lose out to rivals that do not discriminate. Their lack of gender diversity affects the bottom line.

We can, of course, already hear the cries of the worrywarts and associated prodnoses. They will be insisting that if companies can make more profits by having more women then we must force companies to hire more women and promote them. Except that's entirely the wrong conclusion to draw from this finding. For, as Gary Becker pointed out, taste discrimination has a cost to those who indulge in it. And if we find that such discrimination does indeed have such a cost then we don't need to take any legislative action about it, we can just let the cost do the work for us.

Becker originally applied this to race and racial discrimination but it has been widened out by both him and others over the decades since. Start with the assumption that employers are, roughly at least, profit maximizing. And if they're not then the capitalists that own them are. They thus wish to make as much profit as they can. So, if they then give in to their, say, racist desires not to hire nasty pinkish people like me then that means that those nasty pinkish people like me are being discriminated against. And yes, that would be unfair. But that discrimination also makes me cheap to hire for someone else (for whatever skills it may be that I possess, start your jokes here) and so someone else can make excess profits by hiring me at that lower rate. And they will do so. And we've actually seen this in gender discrimination, Dame Stephanie Shirley proved that such discrimination existed against female programmers in the 1960s in Britain. And she proved it by deliberately hiring them cheap and then making a fortune out of having done so. Her very actions thus reducing the amount of such discrimination of course, or at least its effects on the career possibilities of female programmers.

We can assume the same effect here. Perhaps all top managers and capitalists really are sexist horrors who just won't hire women because, well, umm, because they're icky or something? But now that all know that hiring more women creates more profit we will see one of two things happening. Either people start to hire and promote more women in search of those profits or they don't. And the ones who don't will be out competed by those who do. Thus, our aim, the end of taste discrimination against women in business hiring and promotion is achieved, without us actually having to do anything other than point to the finding of this report.

It's exactly because more women does mean more profits that we don't need to do anything about the law or public policy. Because the cost of not having more women will solve the original problem for us, now that we all know about it.